A current appeal in CIBC v. Computershare raises basic questions under the Ontario Land Titles Act. It’s also the first time that the courts have dealt with the many 2006 changes to the Act.

In CIBC v. Computershare, owners had fraudulently caused a discharge of their first mortgage to be registered. The owners had continued their payments and so the lender didn’t know about the discharge. Later, the owners had taken a loan under a new registered first mortgage. Under the Act, the new first mortgage had priority. But the trial court mistakenly decided that the old first mortgage had priority (CIBC Mortgages Inc. v. Computershare Trust Co. of Canada, 2015 ONSC 543 (CanLII)).

Ontario’s move to electronic land registration has brought a sea change for real estate lawyers. Land titles is now almost the only land registration system in Ontario, and it’s a key part of real estate law.

Many owners and mortgage lenders are now also using title insurance.

Ontario land titles doesn’t give any guarantee when a transfer, mortgage or discharge, in a void document, is registered. But, if a buyer or lender takes a downstream registered transfer or mortgage, in a valid document, land titles can give a guarantee. We often call this a doctrine of “deferred indefeasibility.” For a transfer or mortgage, this moves a risk from the system onto the buyer or lender. The trial court decision in CIBC v. Computershare added to this risk.

The Act itself causes deferred indefeasibility. For example, section 87 gives a guarantee only if what’s registered is a “transfer.” If what purports to be a transfer is in forged document, it’s legally a nullity. It isn’t a transfer and so the Act doesn’t give a guarantee.

In 2007, in Lawrence v. Maple Trust, the Ontario Court of Appeal tried to settle the law and overruled its own previous decision. In 2006, while the case was going through, Ontario changed the Act. Unfortunately, neither the case nor the 2006 changes settled the law.

This time, the Ontario Court of Appeal should settle the law. This won’t remove the basic risk, and the risk can fall unfairly on people who can’t avoid it. Deferred indefeasibility is an old idea and modern land titles systems don’t use it. However, the 2006 changes did give some relief to homeowners.

An article in LAWPRO’s June 2015 real estate webzine discusses the case and suggests the moral of the story.

A case comment by Sam Rappos dated July 10, 2015, one of the lawyers in the case, warns of the dangers of the trial decision and suggests that title insurance is a must.

My case comment on CanLII Connects tries to show the law and give some practical advice. It also refers to how electronic documents are signed and includes an article on the 2006 changes to the Act.

Ontario needs to better understand the land titles system, and how land titles and title insurance work together.

An appeal in CIBC v. Computershare raised basic questions under the Ontario Land Titles Act. It was also the first time that the courts had dealt with the many 2006 changes to the Act.

Several more lawyers have published comments on the case, notably Simon Crawford in his comment on CanLII Connects (“WTF Happened to my Mortgage?”)

On December 1, 2015, the Ontario Court of Appeal decided that the appeal should have been to the Divisional Court. The Divisional Court should hear the appeal this fall.

On March 31, 2016, I put a revised case comment on CanLII Connects. (A search of the case names, CIBC Computershare, will lead to the new case comment.)

The revised case comment proposes that the Divisional Court should confirm the trial court’s order of priority, but for different reasons.

The first question is whether the CIBC mortgage was a first mortgage. The revised case comment still concludes that it was.

The second question is whether the court should rectify the register. The revised case comment now proposes that it should. The court must make a just decision, where it can. This must usually be to rectify a mistake, except where it would take possession away from the person that gained an interest through the mistake. The revised case comment proposes that the court should have rectified the register to remove the fraudulent discharge and restore the Computershare mortgage, so that Computershare had priority over CIBC.

The revised case comment goes into the second question on rectification much more deeply than the original.

The third question is whether the system should compensate. The revised case comment proposes that the system should compensate CIBC, subject to whatever the 2006 changes did to title insurers.

The result is that one mortgage lender ended up with a first mortgage and the other with a right to land titles compensation. Normally, it shouldn’t matter much whether a lender is repaid through its mortgage or compensation.

However, the 2006 changes aimed to push loss onto title insurers, contrary to equitable principles of subrogation. If the changes succeeded in doing so and if both CIBC and Computershare had title insurance, CIBC’s title insurer would bear the loss.

Owners and lenders may take this as showing that they can no longer rely on Ontario electronic land registration system, and that they’d be safer always to get added title insurance.

Ontario has invested a lot in land registration and Ontario is proud of its electronic land registration system.

The practical question may be whether title insurers will cover the cost of any greater risk by increasing their premiums or by telling their insureds not to rely on land titles guarantees. Either way, users would bear the cost.